Corporation tax marginal relief is the smoothing mechanic that sits between the 19% small profits rate and the 25% main rate. Without it, a company crossing the £50,000 profit threshold by £1 would face a six-percentage-point jump on every pound; marginal relief tapers the effective rate from 19% at the lower limit to 25% at the upper limit, producing a continuous curve rather than a step.

This page is the generic UK pillar explainer. It covers the mechanic, the formula, the qualifying conditions, the associated-companies divisor, and the CIHC exclusion at the framework level. For property-specific application of the same mechanic (CIHC-via-family-tenant trap, multi-SPV divisor scenarios, property-LtdCo worked examples) read our companion marginal relief property companies page.

The Finance Act 2021 framework

The Finance Act 2021 inserted the current Corporation Tax Act 2010 sections 18A to 18S framework, with effect from accounting periods beginning on or after 1 April 2023. The pre-2023 position was a single main rate of 19% from 2017, with no marginal relief. The FA 2014 abolition of the original small profits rate was not permanent: the FA 2021 reinstatement brought back a structurally different SPR plus marginal-relief regime with a divisor mechanic for associated companies. The current framework has applied through the 2023/24, 2024/25, 2025/26, and now 2026/27 financial years.

The headline rates:

  • Small profits rate 19% on augmented profits up to £50,000 (the lower limit), per CTA 2010 s.18A.
  • Main rate 25% on augmented profits above £250,000 (the upper limit).
  • Marginal relief between £50,000 and £250,000, per CTA 2010 s.18B and s.18D.

The marginal relief formula

CTA 2010 s.18D sets out the relief formula. The relief F is given by:

F = (U − A) × (N / A) × standard fraction

where:

  • U is the upper limit (£250,000 for a single company);
  • A is augmented profits (taxable total profits plus qualifying exempt distributions from non-group companies);
  • N is taxable total profits;
  • standard fraction is 3/200 for the current framework.

The relief F is then subtracted from the main-rate CT charge on taxable total profits. The effect: the effective rate rises smoothly from 19% at the lower limit to 25% at the upper limit, producing the smoothed curve the mechanic is designed to deliver.

Who qualifies and who is excluded

CTA 2010 s.18A sets the qualifying conditions for the small profits rate. A company qualifies if:

  • It is UK resident in the accounting period.
  • It is not a close investment-holding company (CIHC) under s.18N.
  • It is not in oil-and-gas ring-fence territory under s.18C (not relevant to property landlords).

The marginal-relief trigger at s.18B applies where the company would have qualified for SPR but its augmented profits exceed the lower limit. So a company that qualifies for SPR at £50,000 and below also qualifies for marginal relief between £50,000 and £250,000.

The most important exclusion for property landlords is the CIHC exclusion at s.18N. A CIHC is a close company whose business does not consist wholly or mainly of one or more of the qualifying purposes listed in s.18N(2). The qualifying purposes include:

  • Carrying on a trade or trades on a commercial basis.
  • Making investments in land, or estates or interests in land, where the land is let or intended to be let to persons who are not connected with the company.

The property-investment carve-out is the structural protection for most BTL SPVs. The connected-tenant exclusion at s.18N(3) is HMRC's expansive reading: where the company lets to a connected person at below market terms, the whole company risks falling into CIHC and being denied SPR and marginal relief entirely. The discipline is to charge market rent on every connected let.

The associated-companies divisor

CTA 2010 s.18E defines an associated company: at any time when one of the two companies has control of the other, or both are under the control of the same person or persons. Control is defined at s.450; it covers shareholding majority, voting majority, board control, and economic interest.

The divisor mechanic operates through s.18D: the lower and upper limits are divided by 1 plus the number of associated companies. For a five-SPV group the divisor is 5, so each SPV's effective limits are £10,000 (lower) and £50,000 (upper). An SPV that would have been mid-band as a single company can find itself at the main rate in a five-SPV group.

The associated-companies count is per accounting period and includes companies that are associated at any point in the period. Dormant companies are typically excluded where genuinely dormant (no trading or investment activity, no profits arising), but the test is fact-specific and HMRC challenges dormant-exclusion claims where the dormancy is artificial.

Augmented profits

CTA 2010 s.18L defines augmented profits: the company's taxable total profits plus qualifying exempt distributions received from non-group companies. The CT charge itself is computed on taxable total profits only, but the threshold test (whether the company is below £50,000, between £50,000 and £250,000, or above £250,000) uses augmented profits.

The practical effect: dividends received from non-51%-group companies count toward the threshold test even though the dividends themselves are CT-exempt (under the CTA 2009 Part 9A distribution exemption). A company with £40,000 of rental profits and a £20,000 dividend received from a minority shareholding in a non-group company has £60,000 augmented profits and falls into the marginal-relief band; the CT computation still runs on the £40,000 taxable total profits but at the marginal-relief band rates.

Distributions from 51%+ group companies are excluded from augmented profits under s.18L(2). This is the structural protection for group structures: intra-group dividends do not inflate the threshold test.

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Five worked examples

Example 1: Profit just over the lower limit

Company A (UK resident, not CIHC, not ring-fence) has augmented profits £60,000 for the accounting period ending 31 March 2027. £60,000 exceeds the £50,000 lower limit but is below the £250,000 upper limit, so marginal relief applies.

F = (£250,000 − £60,000) × (£60,000 / £60,000) × (3/200) = £190,000 × 1 × 0.015 = £2,850 marginal relief.

CT at main rate £60,000 × 25% = £15,000. Less relief £2,850 = £12,150 CT. Effective rate 20.25%.

Cross-check: at £50,000 (lower limit) the effective rate would be 19% exactly; at £250,000 (upper limit) it would be 25% exactly; at £60,000 it sits at 20.25%, in the right place on the curve.

Example 2: Mid-band

Company B has augmented profits £150,000.

F = (£250,000 − £150,000) × (£150,000 / £150,000) × (3/200) = £100,000 × 1 × 0.015 = £1,500.

CT at 25% × £150,000 = £37,500. Less £1,500 = £36,000 CT. Effective rate 24.0%.

Example 3: Just below the upper limit

Company C has augmented profits £240,000.

F = (£250,000 − £240,000) × (£240,000 / £240,000) × (3/200) = £10,000 × 0.015 = £150.

CT at 25% × £240,000 = £60,000. Less £150 = £59,850 CT. Effective rate on the £240,000 = 24.94%.

The 26.5% effective marginal rate insight: compute the tax cost of the last pound added to the company at £240,000 going to £240,001. That pound has zero marginal relief left (already extinct at the upper limit) and attracts 25p of CT plus erodes the existing relief by about 1.5p. Net marginal cost about 26.5p. The 26.5% is the slope at the top of the band, not a flat rate across the band.

Example 4: Associated-companies divisor

Operator owns four SPVs, all under common control. Each SPV has £75,000 augmented profits. N + 1 = 4 (the company plus three associated companies). Limits divide by 4: lower £12,500, upper £62,500.

£75,000 profits now exceed the £62,500 new upper limit. Each SPV pays main rate 25% on the full £75,000 = £18,750. Total group CT 4 × £18,750 = £75,000.

Counterfactual: had the same £300,000 aggregate profit been held in one company with no associated companies, that single company would be above the un-divided upper limit (£250,000) and would also pay main rate 25% on the full £300,000 = £75,000. In this specific scenario the fragmentation makes no CT difference because the aggregate profit exceeds £250,000 anyway.

The divisor bites where individual-SPV profit lands in what would have been the marginal-relief band before division but exceeds the divided limit. A different example: four SPVs each at £40,000 profit. Undivided each SPV is below £50,000 and pays SPR 19%. Divided (limits £12,500 to £62,500) each SPV is in the marginal-relief band; the SPVs together pay more CT than they would as a single company with £160,000 profits in the marginal-relief band.

Example 5: Augmented profits via dividend receipt

Holding-co structure: Mawell Holdings Ltd receives a £30,000 dividend from a non-group company (a 5% stake in an unrelated trading company). Mawell Holdings's taxable total profits are £40,000 (rental income from directly-held BTL flats).

Augmented profits for the marginal-relief threshold: TTP £40,000 + non-group qualifying exempt distribution £30,000 = £70,000. £70,000 exceeds the £50,000 lower limit, so marginal relief applies to the £40,000 TTP (the dividend is itself CT-exempt under the distribution exemption but counts for the threshold test).

F = (£250,000 − £70,000) × (£40,000 / £70,000) × (3/200) = £180,000 × 0.5714 × 0.015 = £1,543.

CT at 25% × £40,000 = £10,000. Less £1,543 = £8,457 CT. Effective rate on the £40,000 TTP = 21.14%.

Note that the formula uses N / A (taxable total profits over augmented profits) as a fraction, which scales the relief to the TTP rather than the augmented profits. Where N = A (no non-group dividend) the fraction is 1; where N < A (non-group dividend received) the fraction is less than 1 and the relief is correspondingly reduced.

Common mis-calculations

The five most common errors:

  • Using TTP instead of augmented profits in the threshold test. Common with single-company holders who receive small dividends from minority investments and assume the dividend does not affect the CT threshold.
  • Forgetting associated companies. Typical for owner-managed multi-SPV operators who do not realise that siblings under the same individual's control count under s.18E.
  • Treating 26.5% as a flat rate. The 26.5% is the marginal rate on the last pound at the top of the band, not a flat rate across the band.
  • Applying limits without divisor for multi-SPV portfolios. Each SPV does NOT get its own £50,000 to £250,000 band; the limits divide.
  • Assuming dormant companies count toward associated. Dormant companies are usually excluded where genuinely dormant, but artificial dormancy designed to defeat the associated-companies count is challenged by HMRC.

How to claim the relief

Marginal relief is automatic in the CT600 computation. HMRC's filing software and most commercial CT software compute the relief based on the augmented profits figure and the associated-companies count you enter. You confirm the associated-companies count for the accounting period; HMRC's enquiry attention focuses on this entry, so make sure dormant exclusions are correctly applied and the count reflects the position throughout the period.

You can validate workings using HMRC's own Marginal Relief Calculator at gov.uk/marginal-relief-calculator. The calculator applies from 1 April 2023 onwards.

Where this page sits in the cluster

This is the generic UK pillar. The child pages cover specific applications:

Reading sequence: come to this page if you are researching marginal relief generically; follow the link to the property-specific page for the property-LtdCo worked depth.